Use the Information for the Question(s)below

question 28

Essay

Use the information for the question(s)below.
Kinston Industries has come up with a new mountain bike prototype and is ready to go ahead with pilot production and test marketing.The pilot production and test marketing phase will last for one year and cost $500,000.Your management team believes that there is a 50% chance that the test marketing will be successful and that there will be sufficient demand for the new mountain bike.If the test-marketing phase is successful,then Kinston Industries will invest $3 million in year one to build a plant that will generate expected annual after-tax cash flows of $400,000 in perpetuity beginning in year two.If the test marketing is not successful,Kinston can still go ahead and build the new plant,but the expected annual after-tax cash flows would be only $200,000 in perpetuity beginning in year two.Kinston has the option to stop the project at any time and sell the prototype mountain bike to an overseas competitor for $300,000.Kinston's cost of capital is 10%.
-Assuming that Kinston has the ability to sell the prototype in year one for $300,000,draw a decision tree detailing the Kinston Industries Mountain Bike Project.

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Definitions:

Phosphate Group

A functional group consisting of a phosphorus atom bonded to four oxygen atoms, crucial in the structure of DNA and energy transfer.

Antioxidant Molecules

Compounds that prevent oxidation, a chemical reaction that can produce free radicals and thus damage cells.

Free Radicals

Highly reactive molecules with unpaired electrons that can cause damage to cells and DNA, playing a role in aging and various diseases.

Aerobic Respiration

Oxygen-requiring cellular respiration; breaks down organic molecules (particularly glucose) and produces ATP, carbon dioxide, and water. Includes glycolysis, acetyl–CoA formation, the Krebs cycle, and electron transfer phosphorylation.